The head of the financial systems inquiry, David Murray, has publicly criticised chairman of the Australian Securities & Investments Commission (ASIC) Greg Medcraft for overreaching in what Murray phrased as bank bashing.

In an interview on Sky News Business, Murray responded to comments made by Medcraft welcoming tighter controls on banks to limit cross-selling.

These recommendations were “outside the intent” of the inquiry’s original product intervention power with Medcraft “well and truly” exceeding the mandate set for him, Murray said.

“By attacking vertical integration of the banks, he’s picking up a political agenda and running with it. For the regulators, that is the wrong thing to do.”

The topic of bank bashing was also raised after Medcraft’s comments of the Australian banking oligopoly were raised.

“I think we should put in context what the banks actually do,” Murray said. “Whilst the structure is oligopolistic, that’s not uncommon in Australia. We have two major airlines, we have a small number of [major] retail landlords, we have a small number of integrated transport companies, and on it goes.”

There is a need to “start building and stop bashing,” Murray said.

“You cannot have a large number of small, badly rated banks borrowing in foreign markets to intermediate the current account deficit. We need a small group of strong banks to do that.”

The act of bank bashing leads to systemic risk as this can lead to a fall in bank ratings, he said.

“If there’s a political agenda for a Royal Commission – that is a Royal Commission that you have to have when you don’t really need one – the Commission can go searching for solutions that we don’t really need either.”

The current environment had already put a number of “dark clouds” on the banks that need not be there, including the present housing issue, Murray added.

“If foreign investors in banks and foreign lenders to our banks believe that that’s an added layer of risk and their credit ratings could slide further than the Commonwealth government, we are then inducing a price spiral which will hurt the economy deeply.”

“This bank bashing is really helping people think that a Royal Commission is necessary. It’s not necessary.”